Why do you need to prepare the Annual Report the best for your business?

By : Lynda ET

The Annual Report is an important document. It is a formal report that presented by a company to its stakeholders. It is containing, not only Financial Statements, but also all the management reports that the company wishes to disclose for anyone interested in the company’s performance. It sometimes is also as public relations for showing the performance of the company to attract new investors.

Who will need the Annual Report and why the company must prepare well to get the best responses from stakeholders or public (for a listed company) are as follows:

1. Shareholders

Shareholders need to know how well the board of directors manage the company and how its prospect as a profitable company in the next year and the following years. The shareholders are the owners and as the owner, they are eager to know whether they are on the right track in investing their money into the business. They expect the dividends and the capital growth increasing every year, otherwise they will divest their shares and invest the money to other businesses. This is the reason the board of directors should prepare the annual report. It is to satisfy the shareholders at the most. If the dividend decline for a certain year, the directors should not disclose a fraud financial statement. Because someday any fraud statements are easily can be found and the company will have more problems, especially in legal matters, because of providing and publishing the fraud statement.

2. Analysts

The analysts will review the annual report and analyze the prospect of the company for the next years. The analyst might publish their analysis to say the company in a good or bad performance. They also work as shareholder’s advisers to see the company’s performance. The Annual Report must satisfy analyst to review and analyze easily, so that the company can expect the analysts judge whether its good or excellent performance. It will affect for next investments. The result will effect to attract new potential investors. It might also invite an unexpected hostile bid for the company if the analysts publish their analysis.

3. Creditors

The creditors may not be only banks, or financial institutions, but also the suppliers that offering goods or services on credit terms. The Annual Report must be able to put the creditors be confident to the company’s ability to meet the interest payments and the loans repayment. When the annual report satisfy the creditors, it will grow the creditors confidence to the company and they might give more credit to support the company in develop or expanding the business.

4. Government

When the board of directors publishes the annual report, the government might use for statistical analysis for GNP projection in the following year, monetary policy, or for tax policy. It might bear upon the company directly or indirectly as the effect of supporting data for the statistical analysis. It might be good or not good. Because government can make some certain policies which impact indirectly on the company’s making decision to grow up in the circumstance. In some countries, the company’s tax liability is not fixed in the published annual report, but it is provided separately and agreed with the tax authority. It might happen that some companies understate profits in the income statement or undervalue assets and overstate liabilities in the financial statement for tax purpose.

5. Clients / Customers

The published annual report will affect to the clients or customers’ confidences to do business and to retain them as loyal clients/customers. They might become loyal clients or customers, not only caused of the best service of the company directly to them, but also supported by the public image of the company. Analysts publishing their analysis can create public image.

Regardless of the Published Annual Report, the best Annual Report is also important for its internal company, especially for Small or Mid-Size business which are not publishing the annual report as like as big companies. Besides the Shareholders, the internal company needs to be informed and to be ensured the company’s position in the business arena.

1. Management

Management will use the Annual Report to compare for the future budgets and the actual performance. It helps management in planning and making decision policy. This also to convince all management the bonus potential (including for directors), though sometimes it will be contrary to shareholders which expect more dividends from the profits. The board of directors must provide the annual report based on the both interests, so that all parties are satisfied and create mutual understanding for the profit usage.

2. Employees

The Annual Report is also as a tool for employees to see whether the company has still an ability to pay their wages, salaries, incentives and how long the company are still lasting to exist in the business. Some companies usually made a separate report for employees and Labor Unions. The report must provides a clear summary of important matters, because not all employees are able to understand well how to read the annual report. It will effect misleading the employees in analyzing the company’s performance.

Therefore, even for Small and Medium-Size Business, The Annual Report should be provided clearly for some certain outsider’ users and a clear separate report that summarize important matters should be for insider’s users, especially to clarify some certain cases that might not be able to be avoided. Those will impact your business in future.

Author :